Non-disclosure agreement (NDA) is a legal contract that protect confidential information from being shared with third parties. NDAs are commonly used in business settings to protect trade secrets, intellectual property, and other sensitive information.

In this blog post, we’ll discuss the basics need you to know about NDAs as a buyer, including what they are, how they work, and why they’re important.

What is a Non-Disclosure Agreement (NDA)?

A non-disclosure agreement (NDA) is a legal contract that requires one or more parties to keep certain information confidential. The purpose of an NDA is to prevent the disclosure of sensitive information to third parties, which could harm the owner of the information.

NDAs are commonly used in business settings to protect trade secrets, confidential information about customers, and other sensitive information. They can also be used in other contexts, such as in employment agreements or in the context of business partnerships.

How Does a Non-Disclosure agreement work?

Non-disclosure agreements (NDAs) are legal contracts that protect confidential information from being shared with third parties typically outlines the specific information that is considered confidential and specifies the circumstances under which that information can be disclosed. For example, an NDA might state that the confidential information can only be disclosed to employees who have a need-to-know, or that information can only be disclosed if the recipient agrees to keep it confidential.

An NDA can be unilateral, meaning only one party is bound by the agreement, or it can be mutual, meaning both parties are bound by the agreement. In a mutual NDA, both parties agree to keep each other’s confidential information confidential.

Why are NDAs Important?

A Non-Discloure agreement is important for several reasons. First, they protect a business’s trade secrets and confidential information from being shared with competitors or other third parties. This can help a business maintain a competitive advantage and protect its intellectual property.

Second, NDAs can help protect a business’s relationships with its customers and other stakeholders. For example, if a business has confidential information about a customer’s financial situation, it would not want that information to be shared with third parties, as it could harm the customer’s reputation and damage the relationship between the customer and the business.

Finally, NDAs can provide legal recourse if confidential information is disclosed in violation of the agreement. If one party violates the NDA, the other party can take legal action to seek damages or obtain an injunction to prevent further disclosure of the confidential information.

When do buyers use NDA?

In the very beginning of a commercial relationship, before any information is shared, buyer and supplier shall enter a NDA. Please, note a NDA is usually adapted to a specific case and at every occasion, when a new cases is brought to the table, a new NDA shall be entered. Companies usually have NDA templates developed, adapted for the business and buyer/supplier relationship.

In step 4 or step 6 of the sourcing process, before buyers share information with suppliers (RFx), suppliers are requested to sign NDAs. 

Typical content of a NDA

 Here is a list of typical content that should be included in a NDA:

1. Definition of Confidential Information

• Clearly define what constitutes confidential information. This could include technical data, financial data, product specifications, business strategies, and other proprietary information.

2. Obligations of the Receiving Party

• Outline the obligations of the party receiving the confidential information. This generally includes keeping the information secure, not disclosing it to third parties without permission, and using it only for agreed-upon purposes.

3. Exclusions from Confidential Information

• Specify information that is not considered confidential. This typically includes information already publicly known, independently developed by the receiving party, or lawfully obtained from other sources.

4. Term of the Agreement

• State the duration for which the NDA will be effective. This includes both the period during which the information will be shared and the period during which the confidentiality must be maintained.

5. Permitted Disclosure

• Identify any circumstances under which the confidential information may be disclosed. This often includes disclosures required by law or court orders, as well as disclosures to personnel or advisors who need the information for legitimate business purposes.

6. Return or Destruction of Materials

• Provide instructions for the return or destruction of materials containing confidential information once the agreement ends or upon request.

7. No License

• Clarify that the NDA does not grant either party any license, interest, or rights to the other party’s intellectual property, except as expressly provided in the agreement.

8. Remedies for Breach

• Detail the consequences and potential legal remedies in case of a breach of the agreement, which may include injunctions and damages.

9. Miscellaneous Provisions

• Include general clauses that govern the agreement, such as dispute resolution mechanisms, the applicability of state or federal law, and any conditions on assignment of the agreement.

10. Signatures

• Ensure the document ends with spaces for signatures from both parties, including their names, titles, and the date, to signify agreement and understanding of the terms.

Each NDA should be tailored to the specific circumstances and needs of the parties involved, taking into account the nature of the information shared and the scope of the relationship.

The Importance of Project-Specific NDAs in Supplier Relationships

It is recommended signing project-specific Non-Disclosure Agreements (NDAs) with suppliers rather than relying on a generic NDA. This approach, although it may result in multiple NDAs with the same supplier, offers several significant advantages that ensure both parties’ interests are adequately protected and aligned with the specific needs of each project.

Precision and Relevance

Project-specific NDAs are tailored to the particular details and requirements of a given project. Unlike generic NDAs, which cover broad and often vague terms, project-specific NDAs can precisely define what constitutes confidential information in the context of the project at hand. This specificity ensures that both parties clearly understand what information must be protected, reducing the risk of misunderstandings or disputes.

Enhanced Protection

Each project may involve different types of sensitive information, varying levels of confidentiality, and distinct risks. A project-specific NDA allows for the customization of terms to address these unique aspects. For instance, a project involving proprietary technology may require stricter confidentiality terms compared to a marketing project. By tailoring the NDA, the agreement provides enhanced protection suited to the specific nature of the project.

Flexibility and Adaptability

In dynamic business environments, the requirements and scope of projects can change rapidly. Having multiple, project-specific NDAs provides the flexibility to adapt to these changes without compromising on confidentiality. If a new project begins or an existing one evolves significantly, a new NDA can be drafted to reflect the current realities, ensuring ongoing relevance and effectiveness.

Clearer Boundaries and Responsibilities

A project-specific NDA sets clear boundaries and responsibilities for the parties involved. It specifies the duration of confidentiality obligations, the scope of information covered, and the permissible uses of the confidential information. This clarity helps in managing expectations and responsibilities, ensuring that both parties are on the same page and reducing the risk of breaches.

Legal and Compliance Advantages

From a legal perspective, project-specific NDAs can offer stronger enforceability. Courts are more likely to uphold agreements that are clear, specific, and directly relevant to the matter at hand. Additionally, in highly regulated industries, compliance requirements can vary between projects. A project-specific NDA can be crafted to ensure compliance with applicable laws and regulations, providing an added layer of legal security.

Managing Multiple NDAs

While having multiple NDAs with the same supplier may seem cumbersome, it can be managed effectively with proper organization and documentation practices. Keeping a detailed record of each NDA, its scope, duration, and specific terms ensures that all agreements are easily accessible and manageable. Modern contract management systems can facilitate this process, making it simpler to track and administer multiple NDAs.

Building Trust and Strengthening Relationships

Taking the time to negotiate and sign project-specific NDAs demonstrates a commitment to protecting sensitive information and respecting the confidentiality needs of both parties. This practice fosters trust and strengthens the relationship between the buyer and the supplier. It shows that both parties are serious about their business dealings and are willing to invest the necessary effort to ensure mutual protection.

A Frame Agreement Confidentiality Clause Should Not Replace a Project-Specific NDA

In the realm of procurement and contract management, it’s not uncommon to encounter the temptation to rely on a frame agreement’s confidentiality clause as a catch-all for protecting sensitive information across multiple projects. However, a frame agreement’s general confidentiality clause should not replace a project-specific Non-Disclosure Agreement (NDA). The nuances and complexities of individual projects necessitate distinct and tailored confidentiality measures to ensure adequate protection.

Summary Non-disclosure agreement for buyers.

In conclusion, NDAs are an important tool for protecting confidential information in business settings. They can help businesses maintain a competitive advantage, protect relationships with customers and other stakeholders, and provide legal recourse in the event of a breach. If you’re considering using an NDA in your business, and you lack experience, it’s important to consult with a senior buyer or a legal advisor, to ensure that the agreement is legally binding and enforceable.

While signing multiple NDAs with the same supplier may require additional effort, the benefits of project-specific NDAs far outweigh the challenges. They provide precise, relevant, and robust protection tailored to the unique needs of each project. This approach enhances legal enforceability, ensures compliance, sets clear boundaries, and ultimately builds stronger, trust-based relationships with suppliers. By prioritizing project-specific NDAs, businesses can better safeguard their confidential information and navigate the complexities of modern supplier relationships with greater confidence and security.

While frame agreements are valuable for setting the general terms of a business relationship, their confidentiality clauses should not replace project-specific NDAs.

Learn How to Source recommend Jon Kihlman as legal advisor for procurement departments. In the bundle International Sales Law for Procurement Professionals by Jon Kihlman, you will learn about the role of law in business transactions, the need to make a breach of contract possible, choice of law, passing of risk and buyer’s remedies among other things.

Note: Illustration to the blogpost “Non-disclosure agreement for buyers” is created by Chat-GPT on April 20, 2024.